Cruz’s ‘consumer freedom’ proposal could plunge health market into death spiral

Sen. Ted Cruz, R-Texas, joined at rear by Sen. Pat Roberts, R-Kan., speaks with reporters after Senate Republicans released their long-awaited bill to scuttle much of President Barack Obama's Affordable Care Act, at the Capitol in Washington, Thursday, June 22, 2017.
Sen. Ted Cruz, R-Texas, joined at rear by Sen. Pat Roberts, R-Kan., speaks with reporters after Senate Republicans released their long-awaited bill to scuttle much of President Barack Obama's Affordable Care Act, at the Capitol in Washington, Thursday, June 22, 2017. AP

A proposal to let Obamacare insurers sell skimpier coverage will be the wildcard in efforts to pass the revised Republican health care bill that’s expected to be unveiled on Thursday.

And in the opinion of both America’s insurance companies and one of the leading non-partisan health think tanks, it’s a bad idea that could devastate the health insurance market.

The amendment to the Better Care Reconciliation Act by Republican Senators Ted Cruz of Texas and Mike Lee of Utah would let insurers sell cheaper, less-comprehensive “junk insurance” if they also sell a plan that complies with the Affordable Care Act’s requirement that individual plans cover 10 essential health benefits.

Conservative Republicans, such as Sen. Rand Paul of Kentucky, who still oppose the BCRA, have praised the Cruz-Lee amendment for giving consumers more coverage choices.

But on Wednesday, the industry trade group America’s Health Insurance Plans blasted the proposal, saying it would destabilize insurance markets and trigger a death spiral, a phenomenon in which enrollment sharply declines and insurers eventually stop offering coverage due to a situation known as “adverse selection.” That’s when healthy people opt for cheaper coverage, causing premiums to increase dramatically for sicker people who retain more comprehensive insurance.

“Unfortunately, this proposal would fracture and segment insurance markets into separate risk pools (for the healthy and unhealthy) and create an un-level playing field that would lead to widespread adverse selection and unstable health insurance markets,” the organization said in a memo it released Wednesday.

“This is particularly true for patients with pre-existing conditions — who would be most affected and potentially lose access to comprehensive coverage,” as marketplace premiums “rise much faster than under existing market conditions and insurance options dwindle,” the memo continued.

The Kaiser Family Foundation estimates that 1.5 million people with pre-existing conditions such as cancer, diabetes, HIV/AID and substance-use disorders would face higher premiums under the Cruz/Lee amendment. Nearly all of this population earns more than 350 percent above the federal poverty level – the cutoff point in the Senate bill for receiving federal subsidies to help purchase marketplace coverage.

“The death spiral happens because the rules (for ACA-compliant plans and non-compliant plans) are uneven and the people who get caught by it are the 1.5 million,” said Karen Pollitz, a senior fellow at Kaiser who co-authored the study

Although the Cruz/Lee amendment is dubbed the “consumer freedom option,” Pollitz said the title is misleading.

“It’s not really freedom. It’s adverse selection,” she said. “It would trigger the death spiral, like, overnight. This wouldn’t take years.”

Junk insurance can include several types of health care coverage: limited-benefit, specified disease plans that cover only certain diseases; supplemental plans that cover only the expenses another policy doesn’t; and fixed-dollar indemnity plans that provide a specified amount per day toward medical costs.

The Congressional Budget Office, the nonpartisan entity that scores legislation for impact and cost, considers people with these policies to be uninsured, “because they do not have financial protection from major medical risks.”

The Congressional Budget Office is analyzing the Cruz/Lee amendment to see how it would affect coverage. Although it’s unclear whether the revised bill would include the amendment, the Kaiser analysis and AHIP’s opposition will not help it garner additional support from GOP moderates who already are concerned that the legislation would cause 22 million people to lose health coverage over 10 years.

With 52 members in the Senate, Republicans can only lose two members and still pass the bill under budget reconciliation rules that prevent filibustering by Democrats. Vice President Mike Pence would cast the tiebreaker in the event of a 50-50 tie.

Currently, some eight to 10 Republicans are believed to oppose the legislation. In order to secure Lee’s and Cruz’s votes for the bill, Senate Majority Leader Mitch McConnell may have to include their amendment but find a way to satisfy moderates by minimizing the measure’s destabilizing effect on insurance markets.

In a conference call with reporters on Wednesday, David McIntosh, president of the conservative Club for Growth, said the amendment would give people the opportunity to “opt out of Obamacare.”

“Supporting this amendment should be a no-brainer,” McIntosh said in a statement. “Every Republican who has promised to repeal Obamacare should stand with Senators Cruz and Lee and support their efforts.”

Club for Growth and other conservative groups launched a website,, that urges people to see where their senators stand on the amendment.

There are other Republican ideas being floated as well. Sen. Mike Rounds, R-S.D., has floated the idea of limiting the amount that ACA-compliant plans can exceed the cost of non-compliant plans under the proposed amendment. Similar “rating bands” under the Affordable Care Act limit insurers from charging older people more than three times the amount of younger people.

But on Wednesday, Sen. Rand Paul expressed his opposition to such “price controls,” calling them “foreign to any notion of capitalism or free markets.”

Pollitz said she doesn’t know how to devise a plan that links the rates for plans that don’t cover the same benefits.

“I don’t know how you would do that,” Pollitz said. “There’s no sort of rating convention that works like that now, so they’d have to invent that. It would surely be complicated.”